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The real estate market is still hot, and now, interest rates are going up again. It is more important than ever for those looking at homes to have a substantial down payment ready. (This is particularly true for new home buyers who won’t have proceeds from a house sale to start with.) Not only will this lessen the amount a buyer needs to borrow, but a good down payment makes buyers more attractive to lenders. 

The better a down payment on a house, the less risky the loan is for the bank. Buyers can lock in lower interest rates. A smaller mortgage, especially at a favorable rate, means not just lower monthly payments, but paying less interest over the life of the loan. A down payment of at least 20% of the home’s price can also help buyers avoid the need for costly mortgage insurance.

But knowing why a hefty down payment is a good idea, and figuring out how to save for one, are two very different things. Still, homeownership is a worthwhile goal. With some planning, determination, and a few tips and tricks, buyers can start working toward building a nest egg to use as a downpayment. 

Accumulating enough money for a down payment on a house, like any goal, is more likely to succeed with a well-thought-out plan. The real estate agents at Berkshire Hathaway HomeServices Select Properties have compiled their best advice into these guidelines and tips.

But before the real work begins, a buyer needs to assess their situation and lay some groundwork to support their plan.

Exactly how much will you need for a down payment on a house? Yes, 20% of the purchase price is the rule of thumb, but until a buyer understands the home values in their area, they may not understand how much house they can afford. Filling out a mortgage calculator and shopping around for lenders will be helpful to determine the budget.

In some cases, that spacious, updated “dream home” in the desirable suburb might be unattainable, calling for an adjustment in expectations. On the other hand, someone relocating to St. Louis from high-priced New York or L.A. will be pleasantly surprised to learn how affordable things are in the Midwest. 

Decisions on the neighborhood, size of the home, or whether a home is a fixer-upper or move-in ready can all have an impact on how much a family can spend—and thus the necessary down payment. 

It is important to remember that the down payment is only the beginning of the journey. Buyers need to also keep in mind closing costs, moving expenses, and repairs or remodeling once they are in the home. 

After taking a hard look at needs, wants, existing savings, and earnings, buyers can zero in on a reasonable price range. Being pre-approved for a mortgage will give an even more precise dollar amount to aim for.

Deciding on a timeframe is important too. Maybe saving up for a year will be enough to reach the goal. Others might need to look at three to five years down the road. It might make sense for some to wait until the market cools. 

Once the down payment amount and timeframe become clear, it is easier to see what it will take to reach the goal. Breaking it down into smaller monthly or even weekly goals can make the dollar amount feel more attainable. 

Having a positive attitude about the end result of saving for a down payment—buying a home—can be highly motivating. Keep in mind the goal as an incentive to get started and stick with a savings plan.

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After the goal is set and the buyer is in the right mindset to make it a reality, there are several savings strategies that can help. Not every tip is right for every saver, but this list includes some viable options:

1. Set up a dedicated account as a downpayment fund. Open a separate, interest-bearing bank account and consider it off-limits for normal spending.  
2. Make saving automatic. Most banks will split direct deposits between accounts. Set it up so a specific amount goes directly to the downpayment bank account every paycheck. Establish the habit of depositing all (or a set percentage) of any gifts or other incoming funds into the downpayment account.
3. Create a budget. Track expenditures for a month or two. Budget for fixed expenses like rent and utilities, then look for overspending or where costs can be cut for non-essentials. Set a reasonable allowance for anything that isn’t a necessity and stick to it!
4. Look at prices through a different lens. How many hours of work will it cost to buy that pair of shoes or go to that concert? Is the item or experience worth a delay in reaching the downpayment goal? Sometimes simply being aware of the tradeoffs can be an incentive to say no to spending. 
5. Pay down credit cards and pay bills on time. Any unnecessary spending can stand in the way of saving for a downpayment. Interest payments on unpaid balances and late fees can eat away at a bank account. Resist the temptation to put things on a card and instead try using cash as much as possible. Paying down debt and improving a bad credit score will be helpful in securing a mortgage too.
6. Add cash to gift lists. It is no longer a breach of etiquette to request cash as a gift for a wedding. The same goes for birthdays and graduations. Tell family or friends who ask what to get you that you are saving for a home and that any gifts will go to that worthy cause. And be sure to thank them for their generosity!
7. Take on a side gig. Whether driving for Uber or Lyft, delivering food and groceries for Doordash or Shipt, it is easier than ever to get a second job. Special talents can be used for freelance writing, music lessons, etc. Old standbys like babysitting, dog walking, tutoring, or part-time retail jobs are also possibilities.  
8. Look for lost money. It might be a long shot, but check out the National Association of Unclaimed Property Administrators. They help connect people to money that’s owed them from things like uncashed checks, uncollected security deposits, refunds, and overpayments. 
9. Sell stuff. We all have things we don’t need lying around. A yard sale, online marketplace, or local consignment shop can help get rid of unwanted items and add to the nest egg. Bigger ticket items like designer clothing, jewelry, bikes, furniture, or an extra vehicle can bring in serious cash, provided it's in good shape. It’s also a jumpstart on getting ready for the move that’s in your future.
10. Unsubscribe. Do you really need all of those streaming services? Think about trimming the ones that are seldom watched. Evaluate all subscriptions and membership fees to decide if they are essential. Even consider unsubscribing from emails from retailers. Their offers and sales can be a distraction from the goal. 

Remember that a healthy down payment will make moving into a new home easier. There will be less hassle in obtaining a mortgage, and the interest rate will most likely be more favorable. Every dollar saved now can make home ownership more affordable later on. 

Saving might be challenging and will definitely take some sacrifice. With a bit of discipline and keeping an eye on the goal of homeownership, you can do it. And when you are handed the keys to your new home, it will all be worth it.  

To start your journey toward homeownership, contact the agents of Berkshire Hathaway HomeServices Select Properties.